Financials – August | Landholders Driving Change

Final say…

This is the final Farm Financials article in the seven-part series from from Clancy Cox.

You can access all of Clancy’s articles on the LDC Resources page under the Knowledge tab in the main menu on the LDC website.

The primary producer – advisor relationship

 A primary production business varies from other businesses in the sense that there is no single skill needed to make the business successful.

A primary production business needs a breadth of skills to operate effectively. It is for this reason that the need to have trusted advisors is more prominent than perhaps it is in other industries.

 There are so many elements of the business in which primary producers need to play a role from cattleman, horseman, mechanic, electrician, plumber, builder and fencer (just to name a few), that it is no wonder they cannot be an expert in all of them. Therefore, the use of advisors is essential in completing the areas of the business that the primary producer simply cannot be expected to have a proficiency.

Advisors differ in roles for each business – from bankers, lawyers, accountants and financial planners to industry specific advisors. Having the correct mix of trusted advisors will mean the business will benefit from technical competence in many aspects of the business.

The rapport you establish with the banker with whom you conduct business, may help smooth the way when it comes to loan applications or special requests.  A bank manager provides the potential for the business to grow, provides funds required to expand and where possible provides optimal rates to ease the burden of expansion.

Accountants also play an integral role in the primary production business.

Accountants can offer a lot of benefits for a primary producer, such as better understanding the financial performance of the business and how this interchanges with cash to be used in the business (covered in a previous article on working capital).

Using financial results and ratios can aid in decision-making, while having meaningful conversations with your accountant can also mitigate the businesses tax obligations. These tax obligations can come from both year to year derived from profits as well as the times where there is a substantial event occurring such as a succession planning exercise or a property acquisition or disposal.

Having a trusted bank manager work with your accountant may allow the business to manage cashflow more effectively, produce budgets to assist in securing a better rate for any borrowings held or assist in obtaining finance for any future borrowings.

It is also important to engage legal representatives, especially when dealing with large events.

Looking at some examples of where these advisors could assist the producer could be in selling or purchasing property.

Firstly, looking at selling a property, early talks with your advisors prior to the transaction could be beneficial as they step through various requirements relevant to your specific circumstances such as:

  • use of funds to settle existing debt (banker);
  • eligibility for small business CGT concessions including assistance in managing cash flows to meet the criteria – discussed in a previous article – (accountant);
  • timing and terms of settlement (lawyer); and
  • use of funds post sale (financial planner).

These early talks with your team of advisors could result in a significantly different outcome in the capital gains recorded and subsequent net cash from the sale of a cattle station or business asset.

Now look at purchasing a property.

A bank manager is often required to provide financial assistance for the acquisition of the new property and having a strong relationship with the bank manager and accountant to produce budgets and cashflow will assist in this process and ensure your business receives the best possible rate for your circumstances.

Whilst your accountant will also assist from a financial aspect with respect to the purchase of the property and its assets, your accountant together with your lawyer will work together to ensure the purchase is being made by the correct entity with stamp duty and GST considerations.

When a property is purchased, your accountant can look at any apportionments that can be made to split the purchase price between land and assets held on the land.

Using your accountant in this apportionment process can significantly impact the financial results for the property purchase.

For example, water assets established before 1980 could become deductable (as they are pre s75B ITAA1936 deductions).

This could mean that assets that fall into this category are now immediately deductable.

Therefore, ensuring these assets are appropriately given a portion of the purchase price would result in an immediate deduction for the business.

Another example of this apportionment is for fencing assets not claimed under the current legislation (which changed in May 2015) could also be immediately deductable.

Just as an advisor wouldn’t know the ins and outs of a muster, primary producers can’t be expected to know everything that trusted advisors can advise on.

By working together, primary producers and advisors have a real opportunity to put the business in good stead to succeed.    

About the Author:

Clancy Cox is a fourth-generation cattle farmer from the Cox and Atkinson lineages. His great-grandfather Monty Atkinson was instrumental in developing the droughtmaster herd which is still incorporated in the family operation today. Clancy was born and raised on “Glensfield Station,” a cattle station 45km west of Mackay. The family operation runs 10,000 head of cattle for breeding and fattening across three properties.

Clancy has a unique understanding of the agribusiness sector, combining his involvement in the family operation with skills he has developed as a Senior Accountant at PVW Partners.

Clancy is passionate about growing regional Australia.

Disclaimer

Information provided in the article is of a general nature and is intended for informative purposes only. It does not take into account personal financial circumstances. Tailored professional advice should be sought before acting on any of the information contained above.    

By CLANCY COX

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KEQ #1

Figure 1. Total fine sediment reduction by project type and erosion source. Inset shows the proportion of the total project area for each project type.

These estimates have been calculated using two methods: 

1) The pollutant reduction component of the Alluvium/Great Barrier Reef Foundation (GBRF) investment tool for hillslope and streambank erosion management projects; 

2) The Reef Trust Gully Toolbox method for gully erosion management projects. The LDC Water Quality Report 2020 (Waterhouse et al., 2020) highlights that a number of assumptions underlay these calculations, therefore these figures should be treated as the best available estimate of sediment reductions to date.

Preventing sediment from reaching the Great Barrier Reef

Each wet season sediment is washed into local waterways and out to the Great Barrier Reef (GBR). 

Most sediment is very fine, and can stay suspended for a long time and can travel great distances. Valuable topsoil is lost from production, and increased concentrations on the reef can be harmful to seagrasses and corals. 

Landholders in the BBB have completed 69 on-ground water quality practice changes, and it is estimated that these have contributed a fine sediment reduction of 6,154 tonnes per year from reaching the GBR. 

Of this, approximately half of the sediment savings are attributable to grazing land management changes on hillslopes and streambanks, and the other half as a result of gully remediation treatments across a broad range of scales, as shown in the graphs above. 

The table below also highlights the relatively small area of intervention in the gully management projects compared to the large sediment savings that these can achieve - 60 per cent of the sediment savings over only 4 per cent of the project area.

Table 1. Estimated sediment reductions (tonnes) from projects completed in the LDC Project to date.

KEQ #2

*GLMWW = Grazing Land Management Wire and Water

KEQ #3

*The Exploring New Incentives activity area has provided an opportunity for graziers to adopt improved land management practices through a range of activities. For some of these properties, it was the first time they signed contracts for on-ground works.

KEQ #4

The LDC project monitors four gully sites (represented in this table) with gold standard equipment and analysis, carried out by CSIRO.

Results have been compiled in a preliminary report from Bartley et al (2020), with the final report expected to be released by the end of 2020. The preliminary report shows all four sites have indicators of improvements, notably the Strathbogie and Mt Wickham sites.

KEQ #5

KEQ #6

KEQ #7
KEQ #8

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Reef regulations - grazing, standard conditions

  1. For land in good or fair condition (more than 50 per cent ground cover at 30 September), continue using measures to maintain land condition.
  2. For land in poor condition (less than 50 per cent ground cover at 30 September), steps must be taken to improve land condition.
  3. For land in degraded condition (less than 20 per cent ground cover at 30 September), steps must be taken to improve land condition OR prevent areas from further degrading or expanding.
  4. Keep records of measures taken and also of agricultural chemicals, fertiliser and mill mud or mill ash applied to land.
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